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Dollar General Corporation Stock Buy Recommendation Reiterated (DG)

Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model.

NEW YORK (
TheStreet)
-- Dollar General Corporation (NYSE:
DG) has been reiterated by TheStreet Ratings as a buy with a ratings score of A- . The company's strengths can be seen in multiple areas, such as its revenue growth, impressive record of earnings per share growth, compelling growth in net income, notable return on equity and good cash flow from operations. We feel these strengths outweigh the fact that the company shows low profit margins.

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Highlights from the ratings report include:

DG's revenue growth has slightly outpaced the industry average of 2.1%. Since the same quarter one year prior, revenues rose by 10.4%. Growth in the company's revenue appears to have helped boost the earnings per share.

DOLLAR GENERAL CORP reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DOLLAR GENERAL CORP increased its bottom line by earning $2.22 versus $1.81 in the prior year. This year, the market expects an improvement in earnings ($2.86 versus $2.22).

The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Multiline Retail industry. The net income increased by 46.6% when compared to the same quarter one year prior, rising from $146.04 million to $214.14 million.

The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Multiline Retail industry and the overall market, DOLLAR GENERAL CORP's return on equity exceeds that of both the industry average and the S&P 500.

Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period. Although other factors naturally played a role, the company's strong earnings growth was key. Looking ahead, the stock's rise over the last year has already helped drive it to a level which is relatively expensive compared to the rest of its industry. We feel, however, that the other strengths this company displays justify these higher price levels.

Dollar General Corporation operates as a discount retailer primarily in the southern, southwestern, midwestern, and eastern United States. Dollar General has a market cap of $15.97 billion and is part of the services sector and retail industry. The company has a P/E ratio of 18.4, above the S&P 500 P/E ratio of 17.7. Shares are up 16.5% year to date as of the close of trading on Wednesday.